Why you should save your money in Singapore Savings Bonds instead of fixed deposits

It’s amazing that, with the advent of Singapore Savings Bonds (SSBs), people are still choosing to put money in fixed deposits. It seems finance is one of the rare industries where novelty is a disadvantage – when it’s new, no one wants to try it. But there are plenty of reasons not to shy away from SSBs:

What are Singapore Savings Bonds?

SSBs are a form of government bond. They are available to Singaporeans 18 years old or above, and have a maturity period of 10 years. The coupon (interest rate) on SSBs rises every year – at the end of 10 years, you would have earned an annual interest similar to if you had invested in a 10 year Singapore Government Securities (SGS) bond.

This is usually between two to three per cent per annum.

SSBs can be purchased at DBS/POSB, OCBC, or UOB banks. You can buy them through ATMs.

SSBs are superior to fixed deposits in almost every way.

If you need to stash your money somewhere for a long time, SSBs beat fixed deposits because:

  • SSBs offer more flexibility
  • SSBs pay a higher rate of interest
  • SSBs require a lower initial sum
  • Fixed deposits are not any safer than SSBs

1. Singapore Savings Bonds offer more flexibility

With most fixed deposits, you can’t pull your money out before a fixed period (hence the name). If the money is in a fixed deposit for 10 years, it has to stay completely untouched for 10 years.

If you do withdraw the money, you will usually lose the accrued interest. For some banks, there may be a penalty on top of that. This can hurt quite a bit: if you’ve parked the money in a fixed deposit for nine years, and an emergency makes you withdraw the cash, you would have lost all the interest accrued for almost a decade.

SSBs however, let you cash out and run on any month, without losing the accrued interest. That flexibility alone should justify choosing it over fixed deposits.

When looking at long term periods like 10 years or more, flexibility is critical. A lot can happen in that time (e.g. if you are 25 years old, you may be getting married before you hit 35, and require a large amount of money).

2. Singapore Savings Bonds pay a higher rate of interest

Even if you only hold a SSB for one year, assuming SGS rates of around 2.4 per cent, you would still get returns of around 0.7 to 0.9 per cent. This is on par with most fixed deposit options (fixed deposits rarely exceed 0.8 per cent).

Over 10 years, SSBs can provide returns of between two to three per cent (depending on how SGS rates fare), which significantly beats fixed deposits.

3. Singapore Savings Bonds require a lower initial sum

Most of the good fixed deposit options require you to put down sums of $5,000 or $10,000.

(There are some fixed deposits that will accept less, but these lower-end fixed deposits may have interest rates below even half a percent. Along with inflation, the accrued interest will buy you maybe a half-eaten char siew pau in 10 years).

That can be a big sum to commit, and remember: it’s locked up for five to 10 years.

SSBs can be bought for as low as $500, to a maximum of $50,000 per person per bond issue (and up to $100,000 total across all issues). This makes it a better alternative if you are just starting out in the workforce, or on a tight income at the moment.

4. Fixed deposits are not any safer than Singapore Savings Bonds

It’s improbable that banks are “safer” than the Singapore government.

In fact, if a day comes when the Singapore government can’t repay its loans – a scenario with about the same odds as your dog learning to make you a full breakfast – the banks will probably be crashing and burning as well.

And while it’s true that the rate on SGS can fall, even a return of two per cent per annum will still beat the highest fixed deposits.

SSBs offer a greater or equal amount of security as banks, along with higher interest and more flexibility. The decision to use them instead of the bank is something of a no-brainer.

The fifth perspective

But note that SSBs are not investment products, or comparable to corporate bonds. SSBs should not be compared to corporate bonds, as they cannot be sold on a secondary market. SSBs are for holding your savings. They are not good for investing. The returns are too low for purposes such as a retirement fund.

As a rule of thumb, investors should try to beat the annual rate of inflation by at least two per cent. In Singapore (and most developed countries), this means a viable investment should provide consistent returns of around five per cent per annum.

If you are looking for investments to grow your money, then check out this four-step formula instead.

Ryan is a successful property investor and has been writing about money, saving and spending, and personal finance for the last ten years. His articles have been featured in leading publications including Yahoo! Finance, Esquire, Her World and AsiaOne.

4 Comments

  1. Gursharan Singh

    September 14, 2016 at 10:27 am

    Is that rate more than the inflation rate? If the inflation rate is higher then the income earned would have eroded and one may still be left with lessor amount. Agreed that the rate may be higher than the FD rates. Thus one may have to look for other places to keep their savings if the amount is to increase.
    d SAVINGS is next to GODLINESS is OUT OF DATE.

    Current world economic policies are designed PENALIZE the SAVERS via LOW FD RATES in order to PROVIDE SPENDERS WITH LOW RATES FUNDS. Agreed that those who use funds to develop new industries and/or create employment opportunities should be assisted but the side effect is that the BENEFIT OF LOW BORROWINGS ALSO ENJOYED BY MANY OTHERS WHO MAY BE A DRAIN ON THE ECONOMY.

    • The Fifth Person

      September 14, 2016 at 4:42 pm

      Hi Gursharan,

      You’re right. The savings rate can’t match inflation. But in any case, if someone is looking for a place to save their money, the SSB offers higher interest and more flexibility for the saver 🙂

      • Gursharan Singh

        September 14, 2016 at 6:30 pm

        Agreed.

  2. Pingback: How hoarding money in the bank can destroy your retirement – The Fifth Person

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